Abstract
The paper uses a capital asset pricing model to analyze the market risk in the European Union Emission Trading System (EU ETS) and clean development mechanisms (CDM) and Zipf analysis technology to analyze the carbon price volatility in different expectations of returns in the two markets. The results show that the systematic risk of the EU ETS market is around 0.07 %, but the CDM market is clearly divided into two stages; the systematic risk of the futures contracts in the first stage (DEC09–DEC12) is less than the EU ETS market, but the systematic risk of the futures contracts that enter the market is greater than the EU ETS market and has a higher market sensitivity, although on the unsystematic risk. The CDM market is always greater than the EU ETS market. Abnormal returns in the two carbon markets are both lower than 0.02 %, but CDM is higher. The probability of price down is greater than that of price up. The carbon price is affected by market mechanisms and external factors (economic crisis and environmental policies) in the low expectations of returns. However, in the high expectations of returns, compared with the CDM market, the carbon price change in the EU ETS market is less stable and has higher risks.
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Acknowledgments
The authors accomplished this paper as a visiting scholar in Nagoya University, thanks to the support of the Nagoya University and the financial support from the National Natural Science Foundation of China under Grant No. 71273031, Beijing Institute of Technology Basic Research Fund under Grant No. 20122142011. We also would like to thank Dr. Zhenhua Feng and CEEP colleagues for their helpful suggestions and assistance.
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Tang, Bj., Shen, C. & Zhao, Yf. Market risk in carbon market: an empirical analysis of the EUA and sCER. Nat Hazards 75 (Suppl 2), 333–346 (2015). https://doi.org/10.1007/s11069-014-1309-y
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DOI: https://doi.org/10.1007/s11069-014-1309-y